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Bartiromo: Starbucks' Schultz eyes global growth

New health care legislation has forced many large companies to skimp on health care coverage if not canceling it altogether for spouses, retirees, and part-timers among others. But not coffee giant Starbucks.

The new health care legislation has forced many large companies to skimp on health coverage, if not cancel it altogether, for spouses, retirees and part-timers among others. But coffee giant Starbucks is not one of them.

CEO Howard Schultz told me he refuses to cut back because it will send the wrong message to employees, even as the likes of UPS, Time Warner, IBM and Delta Air Lines complain that the law is hurting profitability and job creation.

Starbucks has become as iconic as apple pie in America and throughout the world. I caught up with the CEO of the company that often finds itself on the list of the best companies to work for to talk culture, strategy, economics and how technology is changing his business. Our interview follows, edited for clarity and length.

Q: What's driving your business right now?

A: Last quarter, our U.S. business hit a high-water mark with an increase of 9% store sales and 8% globally because the strategy we put in place is resonating with customers.

If you go back, five, six years, Starbucks predominantly was a business that occurred between 6 a.m. and noon, and the business was morning coffee. We have transformed things to reflect becoming a primary destination in multiple (parts of the) day. We've created products and categories so customers use Starbucks for more than just morning coffee.

Howard Schultz of Starbucks.(Photo: Scott Eklund for USA TODAY)

Our stores domestically and around the world, have become the third place for customers between home and work. The environment, the store design, the free Wi-Fi — everything we've been able to do has created this primary destination. That is the same in Honshu, (China), in Beijing, in Shanghai, in Spain, in Tokyo or in New York City. We've cracked the code on universal relevance.

About three years ago, we started to invest heavily in social and digital media, loyalty cards and mobile. After three years, we are the leading consumer brand on Facebook, Twitter. We are now processing over 5 million mobile transactions a week in our stores.

Q: Is that because of your partnership with mobile processing company Square?

A: Some of it is based on Square. But the primary aspect of it is a Starbucks-developed internal app that we've created. It has given us the ability to build an emotional connection and relevancy with customers outside our stores. From an economic standpoint, the return on that level of emotional engagement has reduced our cost of customer acquisition in terms of lowering the cost of advertising because of the competency of social and digital media, the Starbucks card, the loyalty program and mobile payment.

Q: You mentioned you are expanding throughout the world. How do the various cultures prompt you to change things? Do the likes and dislikes, in terms of sitting and working in a Starbucks and using Wi-Fi, resonate the same across the world, or do you change things to match various cultures?

A: I've traveled around the world, and what's so revealing is that despite the differences in culture, politics, language, how people dress, there is a universal feeling that we all want the same thing. We deeply want to be respected and appreciated for our differences. There is a longing for human connection, for an emotional relationship with one another, not because we're smarter than anyone else, but we've been able to create this environment that has great universal appeal and local relevancy. The secret sauce is the culture and values of our company.

Many companies today are reducing hours of full-time people to get under the minimum so they don't have to pay health care costs. I just shake my head because that's not going to build long-term value and trust with your people. That is a short-term solution and ultimately is not going to add value to the enterprise, the company and your customers.

Q: Several large companies have recently changed health care plans — IBM moving retirees off of coverage, for example, because they say the new health care legislation is too expensive. This is one reason companies say they're sitting on their cash or not hiring new people.

A: On balance, I would say the health care law, to provide health insurance for those people who did not have it, was a good thing for the country and a good thing for those people, and I would encourage them to find ways to provide the insurance and not figure out a way to either lower the hours or get around the system.

In terms of cash on the sidelines, it's clear that over the years of the recession and the cataclysmic financial crisis, many companies figured out a way to cut out costs and be very productive. The question now is, are those jobs going to come back? We need to significantly invest back into the country. The only way we can do that is to provide economic opportunities for people who are unemployed.

I think we have a greater responsibility beyond just the (profit and loss) of our business, to do the right thing not only for our employees, but the communities we serve, to try and make a difference beyond just making money. I say this through the lens of being a CEO of a public company, recognizing that I have a significant fiduciary responsibility to make a profit and build shareholder value. But after 30 years of being in this seat, what I've learned is that we can make a profit and perhaps do even greater by also demonstrating to multiple constituencies that we mean well in the world.

Q: Why do you think it's so hard to move the needle in terms of job creation?

A: The private sector is no longer going to get the kind of aid and support from government programs. We're working through a different mentality, where the transformation of the country is shifting to those businesses that have figured out a way to crack the code on their own to create opportunities. The innovation around technology is going to create opportunities. The question is, is that going to reduce jobs or can it create incremental jobs? There are many people who believe that the significant advancements in technology could be a deterrent to job creation. But we can't stop the evolution and the speed of technology. We must, on a parallel basis, find ways to create incremental jobs.

The long-term lead time to the kind of jobs that we need is linked to education, and the education system today is fraught with peril. I don't think it could only be on the backs of the government. The private sector and companies also are going to have to find innovative ways to educate their workforce and provide new opportunities for workers.

As an example, it's clear to me today that 10 years ago, people viewed an online degree, either two- or four-year degrees, not with disdain, but not with a great deal of respect. That is changing rapidly. There are opportunities ... to lower the cost of education through online learning, both in terms of getting degrees and special kinds of education that relate to people's jobs for advancement. I think companies in the private sector are going to have to work with both private and public education authorities and institutions to create the kind of partnerships that could advance the opportunities for people working in a company, as well as people who are looking for opportunities to get into the workforce.

Q: What about Starbucks? What is most important in terms of driving growth in the next five years?

A: We're in 62 countries. In the next three to five years, we think we will continue to find significant growth opportunities in North America. But on a parallel basis, it's clear that the opportunities we have in the Pacific Rim and Latin America are the significant growth areas, as well. We're on the heels of opening our 1,000th store in mainland China. There will be thousands of Starbucks stores. We only have two stores in Vietnam, and we only have 18 in India. Those are two areas that we see significant opportunities, especially in India.

In Latin America, the opportunities are equally as robust. Mexico is an economic environment where we have 400 stores, a great market for us. I think Mexico and Latin America are proving to be bigger opportunities than we once thought. This year, we had a meeting in Beijing and Shanghai of parents of our employees in China. You might ask, "Why would you do that? Who's ever done that?" The reason is that we have to present ourselves in a way that is locally relevant, not only with our customers, but with our employees. In China the relationship that the parents have to the one child is very unique. We felt strongly that we wanted to describe our relationship as a company to the parents so they understood what we stand for, what we're trying to do. It was such an uplifting and emotional experience for all of us.

Q: In terms of pricing, you raised some prices in June on some products. What could we expect for the fall in terms of pricing in the U.S.? is the price of a cup of coffee going up?

A: We don't see any change in pricing at this point. Pricing is a fragile issue in terms of the cost side. There are many things that are costing us less today than two or three years ago, coffee being one of them. But you look at dairy, and other commodity prices, you look at transportation, the variable cost of doing business in America today, it's very erratic. This is what drives that.

Q: What are you doing in terms of acquisitions and expansion in food, whether Danone yogurt or tea and healthy options?

A: Over the last couple of years, we've made the strategic decision that we had an obligation to provide healthier food-and-beverage products to our customers. The acquisition of (Evolution Fresh) was the first in a series of strategic moves to do that. We already sell yogurt parfaits in our stores. We started feeling that this category, given the Greek yogurt craze domestically and around the world, was an opportunity for us. We talked to almost every yogurt company. When we sat down with Danone, we recognized we had shared values and we could do something together. We will be creating a special Greek yogurt with Danone that will go into Starbucks parfaits in the spring. Then there will be a line of Danone Starbucks products. But it'll be branded Evolution, inspired by Danone, in every supermarket in America. Then we can leverage the flywheel of social and digital media to do all the things that we can do to create awareness and then deliver that in grocery.

Bartiromo is anchor of CNBC's Closing Bell and anchor and managing editor of the nationally syndicated On The Money with Maria Bartiromo. Follow her on Twitter @mariabartiromo. To see previous columns, go to bartiromo.usatoday.com.